A Simple Instrument for Proxy Vector Autoregressive Analysis

Discussion Papers 1905, 25 S.

Lukas Boer, Helmut Lütkepohl

2020

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Abstract

A major challenge for proxy vector autoregressive analysis is the construction of a suitable instrument variable for identifying a shock of interest. We propose a simple proxy that can be constructed whenever the dating and sign of particular shocks are known. It is shown that the proxy can lead to impulse response estimates of the impact effects of the shock of interest that are nearly as efficient as or even more efficient than estimators based on a conventional, more sophisticated proxy.

Lukas Boer

Research Associate in the International Economics Department



JEL-Classification: C32
Keywords: GMM, heteroskedastic VAR, instrumental variable estimation, proxy VAR, structural vector autoregression